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Brexit squeeze on workers' earnings highlights BoE dilemma

Sep 11 2017 11:18
Lucy Meakin

London - You don’t need to tell UK nurses what this week’s inflation and wage data will show. They say their living standards have been squeezed for seven years, and now it’s reached crisis point.

With reports from the Office for National Statistics set to show pay continuing to lag price growth in Britain, nurses are just the latest group of workers to protest. Employees at the Bank of England (BoE) last week reached an agreement following a three-day walkout, while employees of some McDonald’s restaurants went on strike demanding higher pay.

Sluggish consumer spending growth is one reason why the central bank will probably keep its benchmark rate at a record-low 0.25% on September 14, according to a Bloomberg survey of economists. Yet because the pound’s depreciation since the Brexit vote is also driving up import costs, two policy makers are expected to push for a rate increase to keep prices in check.

Consumer-price inflation accelerated to 2.8% last month, economists forecast before data on Tuesday. While that’s below the four-year high seen in May, it’s still outpacing wages, which are projected to have risen a little more than 2% in July in a report due out on Wednesday.

Faster inflation is especially painful for public sector workers, laboring under a 1% cap on salary increases imposed as part of stringent austerity measures since 2010. Members of the Royal College of Nursing union descended on the British parliament in London last week, arguing their salaries have dropped 14% in real terms in the past seven years.

Worse off

While employees of the government earn more than their peers in the private sector overall, nurses are among the lower paid with an average income of £23 500 a year, according to the RCN. It reckons its members are about £3 000 worse off in real terms than when the cap was imposed.

“They tell us it’s all about the economy,” Maria Trewern, an RCN representative, said, nodding at the Parliament buildings behind her as she waited for the protest to start. The union has seen a huge increase in requests for hardship loans, many from nurses in full-time employment, she said. “This is not for anything frivolous - it’s to put food on the table.”

At the far side of the square, Tracey Young, a community nurse from Ayreshire, Scotland, sat under a statue of Mahatma Gandhi to color in her handmade “Scrap the Cap” sign as she explained that a quarter of her own team have now left the industry, found work in other countries or retired earlier than planned. “It’s getting tough,” she said.

Demands to end the public-sector pay cap will be a key theme when the Trades Union Congress meets for its annual conference in Brighton, UK this week. The Telegraph newspaper reported Monday that the government is about to announce it’s dropping the cap for police and price officers, with other sectors to follow.

TUC General Secretary Frances O’Grady said in an interview on the BBC’s Today program that there could be industrial action if the government doesn’t introduce “sensible and fair” across-the-board-pay increases. “People are angry and if we don’t get that pay rise than the TUC are certainly willing to assist our unions and coordinate as we always do, but it’s a last resort.”

The BoE is facing a trade-off between supporting economic growth with record-low interest rates and heading off inflation with higher borrowing costs. Governor Mark Carney has said he’s watching pay developments closely.

While subdued wages in the National Health Service, the UK’s largest employer, are not new, the rapid surge in inflation prompted by the pound’s post-Brexit referendum drop is exacerbating the squeeze on budgets. Consumer spending, which had helped support the UK economy last year, posted its weakest growth since 2014 in the second quarter.

“It looks as if restrained public-sector pay increases are on borrowed time,” said Philip Shaw, an economist at Investec in London. “And it’s possible we see other areas within the private sector demanding more generous pay deals as well. It’s difficult to see much of a pickup in consumption without those income gains.”

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boe  |  eu  |  uk  |  labour  |  brexit  |  inflation  |  economy

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